Role in IT decision-making process:Align Business & IT GoalsCreate IT StrategyDetermine IT NeedsManage Vendor RelationshipsEvaluate/Specify Brands or VendorsOther RoleAuthorize PurchasesNot Involved

Work Phone:

Company:

Company Size:

Industry:

Street Address

City:

Zip/postal code

State/Province:

Country:

Occasionally, we send subscribers special offers from select partners. Would you like to receive these special partner offers via e-mail?YesNo

Your registration with Eweek will include the following free email newsletter(s):News & Views

By submitting your wireless number, you agree that eWEEK, its related properties, and vendor partners providing content you view may contact you using contact center technology. Your consent is not required to view content or use site features.

By clicking on the "Register" button below, I agree that I have carefully read the Terms of Service and the Privacy Policy and I agree to be legally bound by all such terms.

X Marks the VASP

If you cant eat the whole enchilada, you might as well get one tasty bite. Thats the thinking behind the mushrooming application service providers that have been setting their sights on vertical business markets, rather than casting a broad, unwieldy net for the more fattening horizontal plays.

Vertical segmentation by ASPs is gaining steam and favor from some of the venture capital firms, such as Crosspoint Venture Partners, and from some business customers, experts say. The new vertical ASPs (VASPs) arent run by the IT gurus — theyre designed by veterans of each industry segment. And the ability of these veterans to understand their particular fields and take advantage of personal contacts is bumping up their odds of winning business.

While the VASP approach appears to be a safer path today, it wont immunize the players from eventual consolidation in the marketplace. Gartner consultants predict that the VASP market will hit $8 billion by 2005, but add that there will be limited space in any given market segment.

"The idea of tailoring a solution increasingly to a specific business rather than to an IT manager is logical," says Ben Pring, principal analyst of market research firm Gartner. "But the whole idea of the ASP is still struggling, so its still too early to tell" how successful the vertical approach will be.

Further reading

Still, the vertical strategy is considered to be an improvement upon the much-maligned full- service ASP strategy.

"The first generation of ASPs were throwing spaghetti at the wall and seeing what stuck," says Amy Levy, industry analyst of consulting firm Summit Strategies. "Nothing did."

The vertical approach has many advantages over a one-size-fits-all sell. The big problem that the horizontal approach has is the lack of connections that lead to customers. "So each sale was just as difficult as the one before," Levy says.

Under the leadership of an industry veteran, VASPs can pinpoint specific trouble spots in a specific marketplace, such as human resources, health care, government or hospitality.

"They can come in and say, We know where the pain is, and thats refreshing," Levy says.

Take, for example, John McKibbon, a third-generation hotelier. McKibbon, the owner of 20 hospitality properties, founded M3 Hotel Accounting in 1998, after not being able to find an IT solution for his businesses and feeling frustrated by how long the bookkeeping took to do manually. Workers would fax in receipts from individual properties, then those figures would be tallied. By the time the numbers were typed in and sorted, "it would take until noon to figure out what a hotel did the night before," says Rick Frommer, M3s director of marketing.

In one of the few good-news stories in the ASP arena today, M3 says it has watched its customer roster double from 200 in December 2000 to 400 hotel customers in less than a year. The hospitality VASPs typical customer owns 10 hotel franchises. M3 says it offers the only hotel-specific back-office service.

Seeing Profits in Segments

While some ASPs might be able to offer hotel property owners general accounting software solutions, Frommer says M3 appeals to its customers because of its central location approach that generates reports about all of a hoteliers remote locations on a daily basis. The result? A hotel property owner can see immediately what kind of business each property did each day, or, in the case of the restaurant owners, even after each meal.

"The profit [in the hospitality business] is all in segmenting your business and tracking the segments, and our software helps you track," Frommer says. A payroll feature that enables management to plot labor costs will be added to the solution in November, he says. According to M3, customers are charged $3,500 in setup costs and a license fee of $980 per PC — both one-time fees. Then its $300 per month, per hotel.

M3s customers say the solution sure beats their previous way of collecting data — via the U.S. Postal Service.

"Although solutions were available on the accounts payable side, there were few effective alternatives to assimilating operational information in a timely manner," says Gaines Sturdivant, president of MMI Hotel Group, an owner and operator of a golf resort and 17 hotels located in four states and 10 cities. "M3 allowed us to efficiently collect all information necessary to run the business and disperse that data in customizable formats."

Even with some promising results, many full-service ASPs remain content to just test the vertical waters. ASP Corio already provides infrastructure to vertical consortium marketplaces in such sectors as forestry and mining; it is approaching the individual participants in these marketplaces for services, the company says. That could lead to servicing more companies in vertical markets.

"We havent declared any verticals, but there will be certain things that we can leverage," says Jennifer Hewitt, Corios director of e-business solutions. "And we will leverage those to make inroads from a customer-acquisition perspective."

Advertiser Disclosure:
Some of the products that appear on this site are from companies from which QuinStreet receives compensation. This compensation may impact how and where products appear on this site including, for example, the order in which they appear. QuinStreet does not include all companies or all types of products available in the marketplace.